The fixing mechanism matters most right now because of what it has been signalling over recent weeks. The PBOC set its reference rate at the widest weak side deviation from market estimates in six months in late August, after the yuan touched a three and a half year high, a clear sign of discomfort with the pace of gains rather than the level itself. Traders should read this as the central bank applying the brakes rather than attempting to reverse the broader trend, since the yuan has still risen a meaningful amount against the dollar this year. The balancing act Beijing faces is straightforward: a stronger currency helps with capital stability and import costs, but too rapid a rise risks eroding export competitiveness at a time when the domestic economy is showing renewed signs of softness. Watching the gap between the daily fixing and consensus estimates remains one of the more reliable ways to gauge PBOC intent in the days ahead.
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Earlier:
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The daily fixing is Beijing's quietest but clearest tool for telling markets how fast it wants the yuan to move, and lately the message has been to slow down.
Summary:
- The PBOC sets the daily USD/CNY reference rate, or midpoint, at ar...